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Location Based Space: State Of The Union

Cross posted from the Matchbook blog.

Of all the emerging tech sectors, Local remains the one with the most potential.  This post is an overview of where we are, what we know and where the opportunity lies for the local market.

The $140 Billion Market

The local advertising market is estimated to hit $140 Billion by 2013.

via Marketingcharts.comBIA’s Kelsey Group

Traditional local ad spend will decline while digital increasingly takes over.  Traditional encompasses newspapers, direct mail, television, radio, print Yellow Pages, non-digital out-of-home, cable TV and magazines.

Where will that money be spent

Often when the Internet sets it's sites on an industry the market size shrinks to fraction of it’s prior levels, and the remaining market is swallowed be a single player.   In the case of the local ad market, neither happened.  The size of the market has remained relatively flat and no one dominant player emerged to capture those local digital ad dollars.  Digital will take up an increasingly large percentage of the local ad market, but it’s unclear where those billions will be spent.

The Market Proof

In 2010 Groupon proved the local ad market is still out there, and it’s vast.

Groupon showed that :

a. Local ad dollars can be accessed through a direct sales force.   In this case the ad dollars were spent in the form of discounts instead of upfront ad costs.

b. Consumers are extremely receptive to local advertising, particularly when it revolves around a discount.

c.  As the fastest company to $1 Billion, they gave credence to the chart above.  It seems very plausible that $140 Billion in advertising revenue is indeed waiting to be captured.

How to Access This Market

The driving force behind the Yellow Pages, which accounts for about $13 billion of the local ad market, is their direct sales force.  Unfortunately “direct sales” became a dirty word in tech, often followed by words like unscalable.  What we’ve learned is that local merchants are not always sophisticated enough for self service models which is why Adwords has not completely dominated the local market.

The Blunt Hammer of Daily Deals

Here’s how daily deal sites work: They email an undifferentiated deal to millions of people based on the concept that if they send it to enough of them, X % will buy it.  This is a very blunt way to sell something.

As daily deal sites have become more sophisticated they segment their email lists based on the data available to them.  This includes past purchases as well as publicly available demographic data such as age and gender. They then send deals to the segments most likely to buy them.  For example, they would send a spa deal to woman instead of a man.   After doing this, conversion rates dramatically increase.  Even so, this is still a very crude form of segmentation.

The result of this will likely be consumer burnout. The volume of deals that are uninteresting to any one consumer, fighting for space in an overcrowded inbox, will quickly cause fatigue. I believe that this model will last in its current form for 1-2 more years before consumers are completely burnt out on it.

Sophisticated Segmentation: The Check-in

Foursquare was valued at $100 Million. Facebook, Google, and many other technology companies have tried to build a check-in app.  The reason they’re so interested in this market is because they want to capture data about a users location, like where they are and what types of places they frequent.  They then want to use this as a conduit through which they can target local deals specifically tailored to the consumer.

This is the sophisticated method of tapping the $140 Billion local market, which is much more refined than sending out an undifferentiated email to millions.

Unfortunately, the mainstream market does not seem to be interested in the check-in.  Make no mistake, Foursquare is a revolutionary product.  The mass market is often fearful of the revolutionary and I think that's exactly what’s happening here.  When you ask your average non-tech savvy, mainstream female why she doesn't use Foursquare, she'll list off objections that have very little basis in the reality of how the app works.  Despite this, the fear of “letting everyone know where they are,” seems to be pervasive across that demographic.

Foursquare is n

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o stranger to this issue and it's my belief that they will overcome it in time.  They have made strong moves with features like Explore to provide other reasons to use the app outside of the check-in and I suspect they will continue to do this as time goes on.  However, a state of the union is a description of how things are today and I think this chart illustrates it perfectly.


These three venues were tracked over a period of 4 weeks.  The bar in blue is Foursquare Check-ins and the bar in red is Facebook places.  The chart was meant to illustrate how Foursquare still dominates the check-in market after the Facebook places launch.   Foursqaure has a vastly superior product to Facebooks, but that's not what's interesting about this chart.  Facebook Places was exposed to 500 Million people.  250 Million use the mobile app every month.  Even if their product was terrible, the conversion rate on people trying it out should have blown Foursqaure out of the water.  I think this graph should be read like this: Interest in Checking-in – Tech Adopters vs. Normal People

I think the Foursquare userbase is representative of the early adopter market, while the Facebook users base is representative of the mass market.  This chart tells us that the mass market is not buying into the check-in value proposition. It’s more of a barrier than a conduit to the $140 billion.  As I said this will change over time, but this is the reality of the current situation.

The Opportunity

There is vast opportunity in capturing local data about the mass market that does not revolve around the check-in.  Innovation in the location space will come from experimentation with value propositions other than “where are you right now?”  Where do you want to go?  What do you want to make plans to do? Where have you been?  These are all interesting questions. What’s more, they don’t bring up the same “stalking” fears that the check-in evokes.

The sector that is set to explode in the next few months is capturing the places that people want to go.  People have a need to remember bars, restaurants, and shops that they pass by, read about, and have been recommended to check out.  Apps that create lists of places that people want to go will be the next big wave for local.  There are already a number of players circling this, myself included.  That clearly biases my view on the space, but it also gives me an early look at what’s happening.

Here is the pitch to the local merchant: “We have a list of 1000 users that have said that want to come to your restaurant.  What would you offer to entice them to come to your restaurant tonight?” This is very different from the check-in pitch which is: “We have 1000 users that are somewhere in the area.  They might be looking for a another place to go, you might be the type of place they are looking for and if so, what would you offer to entice them into your restaurant?”  The second pitch is interesting, but the first one is much more concrete.  We have people who want to come to your business, give them a reason to make tonight the night.

In the next few months there will be an explosion of apps with varying takes on capturing this data.


1.  The local advertising market is still out there and largely untapped.

2. Direct sales is the most effective method to reach local merchants.

3.  Targeted deals are the most effective way to increase conversions on consumers.

4.  Data around a users local activity is extremely valuable in targeting deals.

5. At the moment, the check-in does not seem to be the method of gathering location data about the mass market.

6.  This leaves ample opportunity to find other value propositions for the mass market that encourage them to share location information.  Chief among those opportunities is capturing where people want to go.

This infographic captures the current state of local, and local is about to get very strong.  Click to see a larger version

click to zoom


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